Partnership Formation

Question 1

When is a partnership formed?

Answer 1

Partnership is formed as soon as 2+ people associate to carry on as co-owners of a business for profit

Question 2

Is a formal agreement needed to form a partnership?

Answer 2

No formal agreement is required to form a partnership.

The parties intent can be implied from their conduct.

Question 3

Is a writing required to form a partnership?

Answer 3

In general, NO.

HOWEVER –> due to SOF, a writing may be required if you want the partnership to be enforceable for a period of more than one year.

Question 4

What is the rule re: new partners and consent?

Answer 4

Unless a partnership agreement provides otherwise, all partners must consent to the addition of a new partner,

Question 5

What is the rule re: capacity and ability to enter into partnership?

Answer 5

General Rule –> contractual capacity is required to enter into partnership.

HOWEVER –>
- a would be partner who lacks capacity would be liable only to the extent of his contribution, but such partnership is NOT void.

-partnership w/ person without contractual capacity will continue to exist unless steps are taken to dissolve it

Question 6

What is the rule re: legality of purpose?

Answer 6

If partnership is formed for illegal purpose, it is VOID

Result –> courts will not compel accounting/settlement

Question 7

What is a “statement of partnership authority”?

Answer 7

A partnership may choose to file a “statement of partnership authority” w the secretary of state.

This will give constructive knowledge of the extent of the partner’s authority with regard to the partnership

Question 8

In general, what issue arise with regards to proof of a partnership’s existence?

Answer 8

Because no formalities are required to form partnership, issues sometimes arise as to whether a partnership exists.

GENERAL RULE –> that the courts will look to the INTENT of the parties.
- If they intended to carry on business as co-owners, there is a partnership even if they did not subjectively intend to form partnership.

Issues:

1. presumptions of partnership
2. factors indicating partnership

Question 9

If existence of partnership is uncertain, what gives rise to a presumption of partnership?

Answer 9

Sharing of profits –> gives rise to presumption of partnership UNLESS:

1. its for payment of debt;
2. services rendered;
3. rent payment;
4. annuity,
5. interest on loan,
6. for sale of goodwill of business

Question 10

What are the factors indicating existence of partnership?

Answer 10

The following factors do not give rise to a presumption of a partnership, but DO tend to indicate the existence of a partnership:

1. TITLE to property is held in joint tenancy or in common
2. parties DESIGNATE their relationship as partnership
3. venture undertaken requires EXTENSIVE ACTIVITY
4. sharing of GROSS RETURNS

Question 11

What is the liability of a person held out as partner?

Answer 11

When a person by words or conduct REPRESENTS himself as a partner or CONSENTS to being represented by another as a partner —> he will be liable to 3rd parties who extend credit to the actual or apparent partnership in reliance on the representation.

HOWEVER –> there is no duty to deny partnership. Mere failure to deny a representation of partnership does not give rise to liability as a purported partner

Question 12

What is the liability of a person who holds another out as partner?

Answer 12

If a person holds another out as a partner –> he thereby makes that person his agent to bind him to 3rd parties

HOWEVER –> if there IS a partnership, only those partners who KNOW OF or CONSENT to this holding out will be bound